Three Arrows Capital is the subject of a probe by the Monetary Authority of Singapore (MAS) for breaking its agreed $180 million limit on assets under management (AUM).
In a statement issued on Thursday, the MAS also pulled up Three Arrows for providing false or misleading information and failing to update the agency on changes to its directors’ shareholdings.
The MAS stated Three Arrows obtained permission in 2013 to handle no more than S$250 million ($180 million) in AUM. However, between July and September 2020 and November 2020 and August 2021, it claims the company exceeded these limits.
Founded in 2012, Three Arrows was once a $10 billion crypto hedge fund but on Monday, a judge in the British Virgin Islands, where the firm was incorporated, ordered its liquidation.
The fund’s managers made big bets on LUNA, the backing token of the failed, so-called “algorithmic” stablecoin, TerraUST (today, classic LUNA and UST are worth almost $0).
The fund also held significant bags of poor-performing altcoins: Avalanche (AVAX), Solana (SOL), and Axie Infinity (AXS), according to Bloomberg. Year to date, all three tokens have lost at least 80% of their value.
Moreover, Three Arrows owned 5% (38,888,888 units) of Grayscale’s Bitcoin Trust (GBTC) as of December 31, 2020. Year to date, GBTC is down -61%. Worse, Three Arrows had exposure to Ethereum 2 and Lido’s liquid staking token, stETH.
The British Virgin Islands court has appointed Teneo as liquidator and Three Arrows Capital will be dissolved. The High Court’s rationale was $660 million worth of debt default payable to Voyager Digital.
Teneo will moderate discussions from potential suitors or distressed asset buyers. Three Arrows still holds some altcoins and equity in several crypto companies.
The rise and fall of Three Arrows Capital
In 2012, Kyle Davies and Zhu Su co-founded their hedge fund which, while incorporated in the British Virgin Islands, moved offices several times and most recently operated from Dubai.
Before its collapse, the Financial Times cited rumors that its AUM had fallen from $10 billion to approximately $4 billion. Many people thought that the hedge fund was comprised mostly of Davies and Su’s personal assets.
Earlier this month, Voyager Digital issued a Notice of Default to Three Arrows. Voyager claims it issued loans worth hundreds of millions of dollars to the hedge fund. US-based Genesis and BlockFi also claim to have liquidated their positions with Three Arrows before the fund’s collapse.
Edit 18:33 UTC, Jun 30: Corrected date in paragraph seven.